6 Financial Planning Tips for Blended Families
Blending families involves careful financial planning and everyone knows divorce can wreak financial havoc, but entering a new marriage can be just as dicey, particularly when two families-complete with kids, assets, debts and expectations-come together.
When I became a single dad after 10 years of marriage, I was at a loss-emotionally, socially and financially. Besides learning how to navigate the legal pitfalls, the reactions of our friends and custody of our boys, there was also the division of our home equity, arrangement of child support and concerns over pensions, among other sensitive financial matters. I swore I'd never get entangled again. Years later, I'm back at it-I'm getting married this summer. Stepfamilies now make up 13 per cent of Canadian households with children. Almost half of those are blended families, with children from the new and former relationships, or in which both partners bring children from previous unions, like mine will be. In our case, we recently bought a house large enough for six, and while we keep our money relatively separate, we haven't thought about what this blending might mean financially. So I went looking for help to answer how we can best protect our relationships, families and bank accounts.
The Big Reveal
Disclose all assets and debts in a frank conversation. "The people entering blended families tend to be older and have more," says Christine Van Cauwenberghe, vice-president of advanced financial planning with Investors Group in Winnipeg. Lay everything on the table so you can create a realistic budget for your new family.
"When one person has more than the other, in terms of investments and RESPs," says Van Cauwenberghe, "it can lead to animosity if one set of kids is headed off to Harvard, while the others can't go to school at all." Take into consideration whether and how to help the financially strapped partner catch up on debts, savings and investments.
Write Up a Contract
A pre-nuptial agreement for marrying couples is worth the trouble. Van Cauwenberghe recommends a clear conversation about wills and power of attorney. "Who will manage your affairs if you become sick? The new spouse or the children?"
Plan for Tax Time
Deborah Dilworth, a tax professional at Artbooks in Toronto, says there are many benefits and transfers you may be eligible for and others you'll lose-like your amount for an eligible dependent under 18, only available to single parents and worth about $11,000 in credits. To offset this loss with gains-such as combining medical expenses, donations, as well as amounts for public transit and children's fitness and arts-Dilworth says blended couples should see the same accountant to prepare their returns going forward.
Keep One Property
Dilworth says, "If you're living apart before you get married and each of you owns a home, you should consider selling one of the properties before you move in together or get married." Under Canadian tax law, a single taxpayer can designate one property as their principal residence, but a family unit can designate only one property between them as their principal residence. And selling a home while it's still your primary residence will let you avoid paying capital gains taxes on the sale.